The Financial Stability Oversight Council Releases Report on Nonbank Mortgage Servicing

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Nonbank mortgage servicers (NMCs) have grown significantly and are crucial to the functioning of the U.S. mortgage market. They are not, however, regulated substantially at the federal level, with state regulators conducting a large portion of examination and supervision.

NMCs have key vulnerabilities that jeopardize the robustness of the mortgage market such as: concentration risks to mortgage assets, contractual advance obligations, reliance on debt for continued operations, limited capital and exogenous macroeconomic real estate market shocks.

These vulnerabilities may lead to mortgage servicing disruptions which will have cascading adverse effects to various Government Sponsored Entities (GSEs) such as Fannie Mae, Freddie Mac, and Ginnie Mae.

Potential adverse effects include reducing mortgage credit availability, inability to financially recover in a housing downturn, challenging resolution/orderly winddown and transition, and replacement/continuity of operations risk.

Our team has worked with NMCs in the past, understand their unique risk profile, and are equipped to support enhanced regulatory interaction. We have mortgage specialists on staff who have developed KRIs and KPIs, liquidity risk management programs, and resolution and recovery plans for mortgage servicers.


The report emphasizes several areas that may be new to NMCs based on their historical regulatory environment and oversight.

New areas of focus include:

  • Safety and soundness principles to be established and prudential regulations to be implemented primarily at the state level with some contribution from the federal level.
  • Comprehensive recovery and resolution planning will be required and will specifically evaluate the interconnectedness of all of the government sponsored mortgage entities to non-bank mortgage servicers.
  • The Federal Housing Finance Agency (FHA) and Ginnie Mae may step in and support examination and supervision efforts from a federal standpoint.
  • Information sharing between the states and federal regulators will increase.

What This Means for Financial Institutions

NMCs should:

  • Expect and prepare for state regulators to develop and provide prudential regulatory expectations and safety and soundness standards.
  • Develop key risk and key performance information criteria, data-gathering, and distribution capabilities as federal and state regulators may seek more data in real time.
  • Expand liquidity risk management and contingency funding planning efforts to comport with GSE expectations as well as Ginnie Mae requirements.
  • Create recovery and resolution plans that specifically account for various stressed scenarios.
  • Prepare for additional direct (government mandated fees) and indirect costs (staffing and execution) associated with continuity of servicing operations.

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Mike Scarpa

Mike Scarpa is a Managing Director in Treliant’s Regulatory Compliance, Mortgage, and Operations Solutions practice. He helps set Treliant’s regulatory compliance/operations agenda, including key trends, solution offerings, and client pursuits. He also executes on regulatory compliance projects and serves as a subject matter expert.